Why resilience requires a strategic shift for US oil and gas

The headlines this year have likely caused many C-suites to heavily revise or completely redraw their strategic plans. These have included military confrontations in the Middle East and surprise announcements from OPEC+. But the most durable concern has been the continued high trade tensions and new tariffs threatened by the United States. This assertive US approach to trade policy has not only directly targeted US oil and gas costs — notably through steel tariffs — but has also contributed to the dampened economic projections.  

Corporate planners are now faced with changes and uncertainty in the short term — especially in adjusting to the flurry of headlines — while also needing to reassess strategies and capital allocation based on adjusted economic expectations. The planning challenge lies in reorienting the enterprise around new baseline expectations centered on general economic prospects and providing the flexibility to respond appropriately to shorter-term changes.

The leading companies during this period will be those that develop a robust and transparent enterprise planning process, one that clearly identifies and proactively mitigates how external disruptions impact the strategic plan. A well-structured, data-enabled planning system not only enhances response times to disruption but also allows an easier flow to business unit or asset-level planning, positioning the company to effectively navigate these challenges.

At the asset or business unit level, strategic considerations become blended with operational concerns. “The pace of M&A and consolidation in the US unconventional space means that individual companies or business units are responsible for a growing magnitude of drilling programs,” says Greg Duffy, EY Americas Integrated Capital and Asset Planning Leader. “Companies are beginning to appreciate the need for greater granularity on both subsurface and surface characteristics for planning.”

To better optimize their planning and operations, leading companies are grouping wells and areas across a drilling plan into meaningful and coherent geospatial units with shared characteristics. This facilitates quicker optimization of drilling plans by clearly demarcating not only the subsurface treatment of wells but also the permitting requirements and any infrastructure constraints that need to be mitigated.

Linking subsurface potential with surface permissibility leads to a significant increase in the duration of reliable schedules, with more credible scenario planning. This extension of schedules and optionality not only boosts the near-term flexibility in executing drilling programs but also opens up additional opportunities for adapting the program and adopting new technologies.

These benefits of embedded planning can also extend to M&A, both in the ability to identify better targets or valuations, but also in helping to realize accretive value through growth and cost synergies realized through the combination. As the costs of acquiring both proven and unproved acreage continue to rise, there is an increasing need for companies to realize these post-close transformations.

Given the complexity of these deals — especially the requirement to quickly integrate different systems and processes into a cohesive, effective and efficient unit — traditional approaches to M&A are showing their limits.

“Rather than a segmentation between deal execution and post-close integration, companies are discovering that the vision and articulation of value to be achieved in the newly combined company is now a required part of the deal thesis up front,” explains Bruce On, EY-Parthenon Strategy and Transactions Energy Partner, Ernst & Young LLP.

On explains that leading companies develop an end-to-end road map to drive value capture from the start of the process and use due diligence to validate key assumptions and align stakeholders around critical points of the strategy.

The post-close transition also becomes an opportunity for truly transformational change. By starting with an end-state concept of a novel operational model for the combined entity, companies that can realize the best value from inorganic growth can leverage organizational design, processes and technology that are fit-for-purpose for the combination, rather than adapted from either entity.

One of the most significant challenges faced by oil and gas companies is maintaining alignment on shared objectives across business units and support functions that often have differing objectives. This complexity is compounded even further when combining legacy business units and functions with those of a newly acquired company.

Each department has its own priorities — procurement seeks the lowest prices, operations aims for the shortest lead times, and supply chain focuses on resiliency. In theory, these objectives are complementary and reinforcing, but challenges can arise in de-conflicting priorities. For example, procurement’s prioritization on cost savings over lead times can lead to operations incurring unexpected downtime if critical materials are received late. The evolution of corporate culture, legacy strategies and key performance indicators (KPIs) from prior capital acquisitions complicate the smooth resolution of these conflicts, as do differing visions from shared assets with other companies or stakeholders.

To effectively navigate these complexities and realize the full synergies of the combination, it is essential to align the corporate vision — stemming from enterprise planning and developed in the M&A strategy — with a cohesive set of KPIs that foster collaboration and keep all teams focused on common goals.

For example, clearly delineating which organization will own key KPIs aligned with the overall corporate vision, such as production and uptime, is key to determining roles and responsibilities and preventing overlap on value capture initiatives. It’s also equally important to understand which organizations are playing a supporting role and how their contributions to the main revenue center will be measured. One function’s main mandate may be to support another function and meet material needs. Viewed then as an enablement center rather than a cost center, management can better align each function toward supporting the KPIs that hold the promise of enhanced value, which drove the deal-making from the outset.

One of the enablement functions ripe for value creation is land administration, which includes managing leases, contracts, surface rights, regulatory compliance and financial obligations associated with land assets. This is particularly critical as oil and gas companies are responsible for a growing magnitude of drilling programs.

Unlike functions such as procurement and supply chain, which oil and gas companies recognize as critical to realize cost competitiveness and optimal performance, land administration often lacks that same level of attention, despite its criticality to unconventional development.

Too often, land management relies on manual processes, siloed data and outdated systems, making it time-consuming, prone to errors and costly. As a result, many companies are confronted with historical land asset information that is not accessible or actively managed, where title commitments are not clear, and land assets are not geographic information system (GIS) enabled. Enabling GIS allows organizations to visualize land boundaries, ownership, encumbrances and environmental overlays in real time — integrating spatial attribute data to support faster, more accurate decision-making. Inaccessible and spatially non-integrated data not only means investments in land assets can be out of line with the company’s operational strategy, but companies often face difficulties in meeting all requirements supporting pipeline operations or in executing a land conservation strategy.

The flurry of land and pipeline acquisition activity further adds complexity to data and operations, highlighting the potential of managed services as a solution for companies seeking to upgrade the land administration function without incurring additional overhead and investment costs. Establishing a harmonized “land data hub” with GIS, production systems, contract data, title, deed and regulatory overlays creates a single source of truth for land assets, enabling smarter, faster and more confident decisions across the enterprise. Many back-end processes involving high-volume, repeatable tasks, such as those involved in lease entry and payment processing, can be significantly reduced through artificial intelligence (AI) and automation, improving quality and lowering risk. Outsourcing foundational data elements can accelerate the integration and processing of information, turning it into actionable insights.

“The benefits of enhanced land administration include enhanced compliance, asset value and data stewardship, leading to an overall reduction in total cost of ownership,” explains Sherry Allen, EY Americas Oil, Gas and Chemicals Managed Services Leader. Continuous innovation leads to streamlined processes and workflows, which decreases manual effort, reduces errors and accelerates cycle time. Land administration is often not a priority area for investments in either skilled personnel or digital tools within companies, but the benefits can be realized through outsourcing or co-sourcing approaches.

Leading companies in this area realize not only smarter land operations but also increased visibility into their operations and future options through integrated land platforms that bring together spatial, financial and operational data. The modernized land administration function not only provides a better foundation for regulatory compliance and audit readiness but also allows for adaptability to portfolio changes as M&A activity proceeds. 

Ultimately, a modernized land administration function — whether developed in house or outsourced to lower internal investments — returns clean, structured and well-governed data to accelerate the transformational change of integrated planning. This provides that companies can continue to underpin their future growth ambitions on the promise of the US unconventional basins. This foundational task works its way into better and embedded planning, helping corporate strategists navigate emerging risks and uncertainties, and continue to drive profitability to ensure continued effective management of the oil and gas sector.